January 28, 2008

McDonald's give investors indigestion

McDonald's Corp. announced on Monday sales are increasing at the lowest level in six years.

The Wall Street Journal suggests the numbers may be from a downturn in consumer spending. Just last year McDonald's CFO Peter Bensen said the company was "recession-resistant".

Could McDonald's success be on the wane? And not just because of recession. Could Americans be choosing healthy portions over unhealthy fast food? And if the slowdown was all about a recession wouldn't Americans look to a restaurant that is known as "cheap" food.

Numbers don't lie, though. McDonald's must change, just as must Americans. The way we eat will change. McDonald's may go the way of the Automats if they don't change.

The cold blast of America's economic downturn has blown into McDonald's.The world's biggest fast food chain surprised Wall Street today with a warningthat consumers were cutting back on Big Macs and fries.

Widely seen as relatively immune to recession because of itsrock-­bottom prices, McDonald's delivered a 22% increase in profits to$1.35bn for the final quarter of the year.

To the alarm of investors, McDonald's said that US like-for-like salesgrowth of 3.3% during the quarter had slowed to zero in December.

Chief executive Jim Skinner blamed the slowdown partly on harsh winterweather putting off "convenience" customers. But he said a weakening in theeconomy was depressing comparable sales by one to two percentage points.

"We acknowledge that the general retail industry here seems to havebeen impacted by the economic environment," said Skinner, who pointed out thatMcDonald's has traditionally been robust in downturns.

McDonald's shares dived by 5.3% to $51.21 during early trading on theNew York stock exchange - a rare setback for a firm that has seen its stockprice quad­ruple over five years.